U.S. sanctions spark surge for Venezuelan crude in China

BEIJING and SINGAPRORE (Bloomberg) -- U.S. sanctions that have effectively blocked American imports of Venezuelan oil are leading to a crude-price surge thousands of miles away in China. 

State-run energy giant PetroChina is selling Venezuelan Merey oil at a premium of about $5/bbl to benchmark U.S. West Texas Intermediate, according to an offer document seen by Bloomberg. The grade was sold at a discount in the Asian nation before the Trump administration began targeting the OPEC producer late last month in a bid to oust autocrat Nicolas Maduro.

The U.S. measures have sparked speculation over whether Venezuela will be able to sustain exports of its dense and sulfurous “heavy-sour” crudes. Meanwhile, American refiners are scouting for alternatives, squeezing supplies of similar oil varieties across the globe. Booming demand for infrastructure in China has made such grades prized in the Asian nation because they are suited for making bitumen -- a residue of refining also known as asphalt.

China almost doubled imports of Venezuelan oil in January from a month earlier, tanker-tracking data compiled by Bloomberg show. That means its state oil companies have supplies that now fetch higher prices because of the uncertainty surrounding heavy-sour grades in the global market. The Merey grade accounted for 80% of the Latin American nation’s shipments to China last year, according to the data.

PetroChina sets a monthly offer price for Merey crude sales to its customers -- mostly smaller privately-owned refiners -- based on its own formula. It’s selling the oil at a premium of $5.0272/bbl to WTI for February, with an additional $2.70/bbl of agent fees, according to the offer document seen by Bloomberg. For January, the company offered the grade at a $3 premium, three traders who participate in the market said.

Heavy grades across the globe are showing stronger pricing. The premium of the Gulf of Mexico’s Mars crude to the U.S. benchmark has jumped to a five-year high. While Middle East exports are typically not as heavy as Venezuelan supplies, they are more so than light varieties such as U.S. shale and European North Sea oil. Swaps for regional marker Dubai has strengthened to its strongest level in nine years against London’s Brent.